Explain what happens to valerie optimal choice

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(a) Valerie gains satisfaction (utility) from both consumption and leisure time. The amount that Valerie works affects the amount of consumption and leisure time she can undertake. Using a budget constraint and indifference curves show and explain where Valerie's optimal choice occurs.

(b) Suppose Valerie experiences a decrease in her wages. Illustrate what would happen to Valerie's budget constraint on your diagram. Explain what happens to Valerie's optimal choice. (c) Explain the income effect of the decrease in Valerie's wages.

Reference no: EM132606073

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